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Crypto Assets Understanding US GAAP Impairment

DeFi Accounting

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Crypto Assets the Complete Guide

If you’ve ventured into cryptocurrencies, you’re not alone. The rise of digital currencies has sparked significant interest among investors and crypto accountants. Still, it’s crucial to understand the accounting principles that apply, particularly regarding impairment under U.S. Generally Accepted Accounting Principles (GAAP). In this article, we’ll take you through understanding US GAAP impairment for crypto assets.


Classifying a crypto asset under U.S GAAP


Currently, no U.S. GAAP accounting standards specifically address the accounting for digital assets. In practice, the accounting treatment under U.S. GAAP is to account for cryptocurrencies as intangible assets.


Most crypto assets (i.e. Bitcoin, ethereum, litecoin) get classified and accounted for as intangible assets. This, in effect, happens by default because they do not meet the definitions of ‘cash’ or ‘cash equivalents,’ ‘financial assets’ or ‘financial instruments,’ or ‘inventory’, and the definition of an ‘intangible asset’ is broad.

Crypto intangible assets are subject to the same intangible asset accounting and reporting requirements in US GAAP as other intangible assets; it is not appropriate to selectively apply other US GAAP to these assets, even where the intangible asset accounting requirements may not seem intuitive to or purpose fit for them.

This poses some challenges, though, as under intangible asset accounting, a cryptocurrency is accounted for at cost and is subject to impairment testing. If the cryptocurrency is deemed impaired, then it is written down. If the cryptocurrency’s price goes up or a cryptocurrency that you previously wrote down subsequently recovers, it cannot be written up.

This is misleading, as the cryptocurrency market can be volatile. If we look at Bitcoin, for example, it hit an all-time high price of approximately $68,600 on November 10, 2021, but declined by February 28, 2022, with a closing price of roughly $37,706. As of writing this blog, Bitcoin is trading at $27,149.

Under current acceptable accounting practice, since you can only capture the downside, the economic value may not be reflected in the financial statements, especially if a cryptocurrency investment experiences large value increases.
To account for a maximum value for the crypto assets, these steps can help you identify a maximum point to impair the crypto assets:

  1. Identifying the Triggering Event:

First and foremost, you need to recognize the triggering event that may lead to impairment. For crypto assets, potential indicators of impairment include a significant drop in the fair value, legal and regulatory developments, or changes in market conditions that affect the asset’s recoverability.


Crypto Assets



  1. Assessment of Recoverability:


Once you’ve identified a triggering event, you need to assess the recoverability of your crypto assets. In US GAAP, the recoverability test compares the asset’s carrying amount to its recoverable amount. The recoverable amount is higher than the asset’s fair value and value in use.


  1. Measuring Fair Value:


Determining the fair value of crypto assets can be tricky. You might need to rely on third-party pricing sources or exchanges to determine a reliable market price. It’s essential to remember that cryptocurrency prices are highly volatile, so you’ll need to consider the timing of the assessment.


  1. Impairment Recognition:


If the carrying amount of your crypto asset exceeds its recoverable amount, you’ve got an impairment on your hands. This is the point at which you recognize a loss by adjusting the asset’s carrying amount to its recoverable amount.


  1. Presentation and Disclosure:


Under US GAAP, appropriately presenting the impairment loss in the financial statements is vital. You should recognize the impairment loss in the income statement and provide clear and transparent disclosures about the nature and amount of the impairment. This could greatly impact your crypto tax reconciliation at the end of the year if you indeed have impaired or unrecoverable assets.


  1. Ongoing Assessment:


Crypto assets’ values can change rapidly, so conducting ongoing assessments is essential. Regularly monitor market conditions and be prepared to reassess the recoverability of your assets if there are significant changes in their fair value or other indicators of impairment.




Understanding US GAAP impairment for crypto bookkeeping is crucial to managing your financial statements when you hold these digital assets. It’s a continuously transforming field, but by identifying triggering events, assessing recoverability, measuring fair value, and recognizing impairments when necessary, you can confidently navigate the world of cryptocurrencies.

As acceptance of cryptocurrency continues to gain traction and more corporations seek to allocate investment funds into crypto, it will be interesting to watch this space to see what guidance or actions, if any, come from the FASB. Remember, staying informed and seeking professional advice from a crypto accountant or crypto tax accountant when needed is key to maintaining financial transparency and compliance with accounting standards.